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Aircraft Sector Understanding of OECD and Qualifying Declarations

The Cape Town Convention relates to the creation and enforcement of international interests. How they are used for financing transactions is, although critical as economic motivations, not addressed in the Convention itself. The reference to the Cape Town Convention in the Sector Understanding on Export Credits for Civil Aircraft (ASU) of OECD fills this gap. Though ASU, which is Annex III of the Arrangement on Officially Supported Export Credits,[1] is applicable only to financing by export credit agencies, it is in practice critical, as most aircraft financing involves export credit agencies.

The ASU is an agreement among major aircraft manufacturing states to provide “a framework for the predictable, consistent and transparent use of officially supported export credits for the sale or lease of aircraft”.[2] In particular, the ASU places limits on the premium rates on the credit that export credit agencies extend in its Appendix II. In this context, if the operator of the aircraft is situated in a State on the list of State Parties to the Cape Town Convention that qualifies certain conditions (“Cape Town List”), reduction of up to 10 % from the minimum premium rate is permitted.[3] This mechanism, known as the “Cape Town Discount,” visualises the economic benefit of the Cape Town Convention that the empirical research predicted.

To be on the Cape Town List, a State must (besides being a Contracting Party to the Cape Town Convention) have made the “qualifying declarations” and have implemented the Cape Town Convention “in its laws and regulations, as required, in such a way that the Cape Town Convention commitments are appropriately translated into national law.”[4] The “qualifying declarations” are a combination of required opt-ins and prohibited opt-outs. The required opt-ins are to (a) choose Alternative A with regard to the exercise of international interests in insolvency proceedings (under Article XI of the Aircraft Protocol) with the waiting period being no more than 60 calendar days, (b) authorise de-registration and export as additional remedies for a creditor (under Article XIII of the Aircraft Protocol), (c) assure the freedom to agree on the choice of law (under Article VIII of the Aircraft Protocol), and either (d) authorise remedies without court procedure (under Article 54 (2) of the Base Convention) or (e) ensure the grant of relief pending determination (under Article 13 of the Base Convention) within a limited period of time.[5] The prohibited opt-outs are to exclude (a) the availability of relief pending final determination and the jurisdictions for them (under Article 43 of the Base Convention) unless the State authorises the remedies without court procedure, (b) the priority of the Cape Town Convention over the Convention for the Unification of Certain Rules Relating to the Precautionary Attachment of Aircraft (1933 Rome Convention) (under Article XXIV of the Aircraft Protocol), or (c) authorising the grant of a lease of the aircraft object as a remedy (option provided for in Article 54(1) of the Base Convention).

It is noteworthy that the modest unification by incorporating many options in the text is complemented by the requirement of “qualifying declarations.” Among the

States Parties that wish to realise the economic benefit from the Cape Town Convention, the rules will be unified to a large extent after all. The fact that the unification takes place not by drafting of the text but from the choices made by the State Parties is consistent with the idea of regulatory competition in the law market.

  • [1] The most updated version is of 1 February 2016, TAD/PG(2016)1 (hereinafter “ASU 2016”).
  • [2] ASU 2016, Article 1.a).
  • [3] Articles 37 and 38 of the Appendix II to the ASU 2016.
  • [4] Article 39 of the Appendix II to the ASU 2016.
  • [5] Annex 1 of the Appendix II to the ASU 2016. For (e), the time period shall be not more than tencalendar days for (i) preservation of the aircraft objects and their value, (ii) possession, control orcustody of the aircraft objects, and (iii) immobilisation of the aircraft objects, and not more 30calendar days for (iv) lease or management of the aircraft objects and the income thereof and (v)sale and application of proceeds from the aircraft equipment.
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